Tips for first Time Life Insurance Buyers

The first question to ask yourself is do you need life insurance? Insurance is not, or should not, be an investment. Insurance is a protection from risk or risk of loss. If you are a single person with no one depending on you, then other than your funeral arrangements, no one is at risk.

If you have dependants, or a family, then you need to determine the amount of coverage that is right and what you can afford. If you are the primary breadwinner in the family, then what you need will likely be equivalent to your current earnings for the remainder of your lifetime. If you are not the primary earner in the family, then you need to determine if the loss of your income is going to be detrimental to your survivors.

Once you have determined the amount of coverage you need to replace the loss of income, determine how long that risk will exist. Consider the remainder of your life; will your income level go up? Will it go own? What are your needs going to be?

If you are building wealth over time, your need for insurance may be diminishing as you approach closer to financial independence. Some policies are structured where you continue to pay into them for your entire lifetime up to a certain age and then it can be surrendered for a cash value, typically these are called whole life or universal life policies. Insurance agents love to sell these policies because commissions are higher.

When you talk to your agent, you will likely be steered towards one of these policies. As people have become more informed about the advantages of term insurance, new products have been introduced like modified term policies that are hybrids of the whole and universal life policies and annuities. The problem is, these polices take a portion of your money and invest it, and that is where the payout in the end comes (assuming you make it to then). Often you are better off taking the money yourself and investing it on your own. In that case, you have full control of that money and when and where you can use it and what types of investments and growth risks you are willing to take.

Term insurance remains to be a viable option that also makes financial sense. With term insurance you are paying for just the period of your life you are at most risk of financial loss. Once you have attained a level of wealth such that you can be self-insured, you no longer need insurance, so why continue premiums? This is the advantage of term. Since it does not have a cash payout at maturity, it is also less expensive. This means you can take your savings over the more expensive policies and put those savings to work in stocks or mutual funds.

Buying insurance is never an enjoyable experience because it is money going towards something that might happen. There are no guarantees. Make sure you know your risks and how much you need to cover those risks if the worst case happens. Then shop around, prices vary even on the same types of insurance. Understand what the policy means and what it covers. Weigh the pros and cons. Also check with the state you live in for any consumer guides and publications available free of charge and to ensure your agent is legitimate.